Exhibit 13.1
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Profile
West Suburban Bancorp, Inc. ("West Suburban") is the parent bank holding company
of ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ (the "Bank," and together with West
Suburban, the "Company"). The Company had total consolidated assets at December
31, 1998 of approximately $1.31 billion. West Suburban Bank is the largest
independent bank headquartered in DuPage County.
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WEST SUBURBAN BANCORP, INC.
FINANCIAL HIGHLIGHTS
Years Ended December 31,
(Dollars in thousands, except per share data)
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1998 1997 1996 1995 1994
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Net income $16,178 $21,784 $15,942 $13,525 $13,026
Per share data
Earnings - basic 37.41 50.37 36.86 31.27 30.12
Book value 310.74 306.02 273.62 254.73 226.53
Net loans 771,148 762,538 784,242 760,687 709,205
Total assets 1,308,953 1,293,691 1,235,604 1,154,349 1,041,495
Deposits 1,155,952 1,144,949 1,099,397 1,029,789 923,257
Shareholders' equity 134,393 132,353 118,338 110,168 97,971
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TABLE OF CONTENTS
Profile................................................ 1
Letter to Our Shareholders,
Customers and Friends................................ 2
Corporate Information.................................. 3
Business Review........................................ 3
Selected Quarterly Financial Data...................... 3
Review of Operations................................... 4
Independent Auditors' Report........................... 5
Consolidated Financial Statements...................... 6
Notes to Consolidated Financial Statements............. 10
Selected Financial Data................................ 22
Distribution of Assets and Net Interest
Income and Average Rates
and Yields on a Tax Equivalent Basis................ 23
Management's Discussion
and Analysis of Financial
Condition and Results of Operations................. 25
The Year 2000......................................... 31
Boards of Directors and Officers...................... 32
Addresses of Locations................................ 35
Map of Locations...................................... 36
Shareholder Information............................... 37
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THIS REPORT, INCLUDING THE LETTER TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS,
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY INTENDS SUCH FORWARD-LOOKING
STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING
STATEMENTS CONTAINED IN THE PRIVATE SECURITIES REFORM ACT OF 1995, AS AMENDED,
AND IS INCLUDING THIS STATEMENT FOR PURPOSES OF INDICATING SUCH INTENT. FORWARD
LOOKING STATEMENTS, WHICH ARE BASED ON CERTAIN ASSUMPTIONS AND DESCRIBE FUTURE
PLANS, STRATEGIES AND EXPECTATIONS OF THE COMPANY, ARE GENERALLY IDENTIFIABLE BY
USE OF THE WORDS "BELIEVE," "EXPECT," "INTEND," "ANTICIPATE," "ESTIMATE,"
"PROJECT" OR SIMILAR EXPRESSIONS. THE COMPANY'S ABILITY TO PREDICT RESULTS OR
THE ACTUAL EFFECT OF FUTURE PLANS OR STRATEGIES IS INHERENTLY UNCERTAIN. FACTORS
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON THE OPERATIONS AND FUTURE
PROSPECTS OF WEST SUBURBAN AND THE BANK INCLUDE, BUT ARE NOT LIMITED TO, CHANGES
IN INTEREST RATES, GENERAL ECONOMIC CONDITIONS, LEGISLATIVE/REGULATORY CHANGES,
MONETARY AND FISCAL POLICIES OF THE U.S. GOVERNMENT, INCLUDING POLICIES OF THE
U.S. TREASURY AND THE FEDERAL RESERVE BOARD, THE QUALITY OR COMPOSITION OF THE
BANK'S LOAN OR INVESTMENT PORTFOLIOS, DEMAND FOR LOAN PRODUCTS, DEPOSIT FLOWS,
COMPETITION, DEMAND FOR FINANCIAL SERVICES IN THE COMPANY'S MARKET AREA AND
ACCOUNTING PRINCIPLES, POLICIES AND GUIDELINES. THESE RISKS AND UNCERTAINTIES
SHOULD BE CONSIDERED IN EVALUATING FORWARD-LOOKING STATEMENTS AND UNDUE RELIANCE
SHOULD NOT BE PLACED ON SUCH STATEMENTS. FURTHER INFORMATION CONCERNING THE
COMPANY AND ITS BUSINESS, INCLUDING ADDITIONAL FACTORS THAT COULD MATERIALLY
AFFECT THE COMPANY'S FINANCIAL RESULTS, IS INCLUDED IN THE COMPANY'S FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS:
We are less than a year away from the new millennium. All of us at West Suburban
look forward to meeting the challenges that the year 2000 and beyond bring to
us. Consolidation in the industry has reduced the number of competitors but not
the fierceness of the competition. The need for good quality banking services
delivered by a locally owned community bank continues to be a strong focus of
the West Suburban culture. Over the years we have seen relationships with
customers blossom into relationships with parents and their children and
grandchildren.
In order to keep up in the fast paced arena of financial services, West Suburban
has laid the framework for the next millennium. In late 1997, we upgraded or
replaced certain computer system hardware components and software applications.
In 1999, we are starting the process of implementing a wide area network which
will enable our branches to operate in a more integrated fashion. We have also
started to implement a call center that will allow us to serve our customers
better and more expeditiously. This will allow our branches to help provide our
walk-in customers with more efficient service as well as offer additional
products and services. In 1999, we will be implementing a new Marketing Customer
Information Files ("MCIF") system. This system will help us enhance our
knowledge of our customers' needs and interests and allow us to serve them
better.
As the markets in which we started West Suburban have matured and become fully
developed, we have looked outside of DuPage County for additional growth. In
February 1999, we opened our branch in Aurora at Eola Road and New York Avenue.
We are excited to see growth all around this location. In the fall of 1999, we
hope to open our Romeoville branch. This branch in Romeoville will serve a
diverse population which we believe has not had convenient access to banking
services. In addition to establishing new facilities, we also intend to improve
certain of our current facilities. West Suburban is expanding its presence in
Villa Park through the acquisition of a location which will allow us to provide
the convenience of drive-up tellers and ATM services for our customers. We have
also acquired a parcel of land on the east side of St. ▇▇▇▇▇▇▇ and plan on
building on that site in the future.
Late in 1997, we acquired West Suburban Insurance Services, Inc. which provides
insurance related products to our customers such as life, auto, homeowners and
supplemental medical insurance to name a few. Not all customers have the same
needs so we believe by providing multiple products and services we can better
serve all of our customers' needs.
The 1999 first quarter dividend of $16.50 per share includes a one-time special
dividend of $10.00 per share. Cash dividends received in 1998 increased by $5.00
(28.6%) per share from $17.50 per share in 1997 to $22.50 per share in 1998. Our
book value increased to $310.74 (1.5%) at December 31, 1998 from $306.02 at
December 31, 1997. Net income decreased from our 1997 record level of $21.8
million to $16.2 million for the year ending December 31, 1998.
As always, we appreciate the support that has made us the largest independent
bank holding company in DuPage County. We welcome your comments, criticisms and
suggestions. We could not have achieved our success without the support of our
shareholders, customers, communities, friends and employees. Thank you everyone.
Sincerely,
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
--------------------- -------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇
Chairman of the Board President and CFO
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CORPORATE INFORMATION
West Suburban is a bank holding company headquartered in DuPage County,
Illinois. As of December 31, 1998, West Suburban had a single class of common
stock issued and outstanding. The shares of West Suburban's common stock are
not traded on any stock exchange or on the over-the-counter market. West
Suburban's per share book value as of the end of the indicated periods and
dividends declared for the last two years are set forth in the following
table:
YEAR QUARTER BOOK VALUE DIVIDENDS DECLARED
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1998 4th $310.74 $16.50
3rd 317.87 6.50
2nd 317.43 6.00
1st 311.72 5.00
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1997 4th $306.02 $5.00
3rd 299.48 4.50
2nd 290.87 4.50
1st 282.10 4.50
The dividend declared in the 4th quarter of 1998 included a one time $10.00 per
share special dividend payable on January 4, 1999 to shareholders of record as
of December 15, 1998.
BUSINESS REVIEW
The Company had total assets at December 31, 1998 of approximately $1.31
billion. As of December 31, 1998, the Bank operated 32 facilities throughout
DuPage, ▇▇▇▇, ▇▇▇▇▇▇▇ and Will Counties, with its business activities focusing
primarily on the retail and commercial banking markets. The Company had a total
of 506 full-time equivalent employees at December 31, 1998.
SELECTED QUARTERLY FINANCIAL DATA
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(Dollars in thousands, except per share data)
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1998
Interest income $23,128 $23,394 $23,080 $22,135
Net interest income 12,469 12,520 12,273 12,421
Provision for loan losses 250 237 1,187 889
Other operating income (loss) 2,415 2,508 (610) 3,103
Other operating expense 7,727 7,406 7,793 8,309
Net income 4,526 5,112 2,352 4,188
Earnings per share - basic 10.47 11.81 5.44 9.69
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1997
Interest income $22,751 $24,278 $24,216 $23,963
Net interest income 12,460 12,849 12,767 12,432
Provision for loan losses 295 276 276 776
Other operating income 5,738 2,234 2,029 2,395
Other operating expense 7,795 7,423 6,787 7,685
Net income 6,565 4,833 5,123 5,263
Earnings per share - basic 15.18 11.17 11.85 12.17
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REVIEW OF OPERATIONS
West Suburban faced many challenges in 1998. We were faced with the challenge of
assimilating five separate bank subsidiaries into one. Other challenges included
those presented by the upgrading of our data processing system to increase
internal operation efficiency, addressing Year 2000 compliance, establishing a
call center, improving PC Banking, rolling out our web site
(▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇) and improving our ability to offer new products and
services in the future.
In 1998, West Suburban Bank continued to develop new products that serve the
varied needs of our customers. For example, we introduced a Money Market
Checking Account. This product was designed to offer our customers higher
interest rates on their deposits while continuing to allow them access to their
funds. The Money Market Checking Account also provides our customers a
competitive alternative to nonbank investments.
In the past year, we continued to explore new products, markets, delivery
channels and methods to acquire new customers and to strengthen our ties with
existing customers. Our new indirect lending products were introduced in 1998.
These new products have enabled West Suburban Bank to serve the consumer loan
needs of our customers and to increase our consumer loan portfolio. In general,
the loan department effectively met the challenges presented by the volatile
marketplace. These efforts, along with our existing products and services,
reflect our dedication to meeting the needs of our customers as well as the
needs of our market area.
At West Suburban, we feel it is our responsibility to not only be a successful
community bank but also to be an exemplary corporate citizen. This role was
expressed both at the institutional level and through the efforts of our
civic-minded employees who participated in a wide range of not-for-profit
organizations and made regular donations of private gifts to community
organizations.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
West Suburban Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of West Suburban
Bancorp, Inc. and subsidiary (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of income and comprehensive income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of West Suburban
Bancorp, Inc. and subsidiary at December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
January 29, 1999
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
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WEST SUBURBAN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Dollars in thousands)
ASSETS
--------------
1998 1997
---------- -----------
Cash and due from banks $ 41,549 $ 38,251
Interest-earning deposits in financial institutions 724 343
Federal funds sold 64,590 21,740
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Total cash and cash equivalents 106,863 60,334
Investment securities:
Available for sale (amortized cost of $204,947 in 1998;
$218,892 in 1997) 205,624 218,587
Held to maturity (fair value of $172,590 in 1998;
$199,905 in 1997) 171,679 199,292
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Total investment securities 377,303 417,879
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Loans, less allowance for loan losses of $9,998 in 1998;
$9,772 in 1997 771,148 762,538
Premises and equipment, net 33,393 31,142
Other real estate 1,742 2,450
Accrued interest and other assets 18,504 19,348
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TOTAL ASSETS $1,308,953 $1,293,691
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 112,464 $ 124,220
Interest-bearing 1,043,488 1,020,729
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Total deposits 1,155,952 1,144,949
Accrued interest and other liabilities 18,608 16,389
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TOTAL LIABILITIES 1,174,560 1,161,338
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Shareholders' equity:
Common stock, Class A, no par value; 1,000,000 shares
authorized; 347,015 shares issued and outstanding 2,774
Common stock, Class B, no par value; 1,000,000 shares
authorized; 85,480 shares issued and outstanding 683
Common stock, no par value; 15,000,000 shares authorized;
432,495 shares issued and outstanding 3,457
Surplus 38,066 38,066
Retained earnings 92,461 91,014
Accumulated other comprehensive income:
Unrealized gain (loss) on securities available for sale, net of
taxes (benefit) of $268 in 1998; ($121) in 1997 409 (184)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 134,393 132,353
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,308,953 $1,293,691
========== ==========
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The accompanying notes are an integral part of the consolidated financial
statements.
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WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands, except per share data)
-----------
1998 1997 1996
-------- -------- --------
INTEREST INCOME
Loans, including fees $ 64,958 $ 69,414 $ 70,759
-------- -------- --------
Investment securities:
Taxable 22,034 21,979 13,859
Nontaxable 1,656 1,825 2,084
-------- -------- --------
Total investment securities 23,690 23,804 15,943
Deposits in financial institutions 27 12 16
Federal funds sold 3,062 1,978 1,840
-------- -------- --------
Total interest income 91,737 95,208 88,558
-------- -------- --------
INTEREST EXPENSE
Deposits 41,874 44,313 37,787
Other 180 387 572
-------- -------- --------
Total interest expense 42,054 44,700 38,359
-------- -------- --------
Net interest income 49,683 50,508 50,199
PROVISION FOR LOAN LOSSES 2,563 1,623 1,505
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 47,120 48,885 48,694
-------- -------- --------
OTHER OPERATING INCOME
Service fees 3,247 3,414 3,746
Trust fees 161 171 157
Net gain on sales of loans 807 280 151
Loan servicing 402 659 899
Net realized gain on sales of investment securities available for sale 553 136 449
Write-down of carrying value of investment securities available for sale (3,200)
Net gain on sales of other real estate 546 1,466 55
Litigation settlement 2,344
Other 4,900 3,926 4,439
-------- -------- --------
Total other operating income 7,416 12,396 9,896
-------- -------- --------
OTHER OPERATING EXPENSE
Salaries and employee benefits 15,947 15,849 14,954
Occupancy 3,303 2,901 2,743
Furniture and equipment 3,184 2,802 2,655
FDIC insurance premiums 224 172 1,113
Professional fees 738 829 1,062
Data processing 1,082 772 827
Other real estate 291 523 5,042
Other 6,466 5,842 5,754
-------- -------- --------
Total other operating expense 31,235 29,690 34,150
-------- -------- --------
INCOME BEFORE INCOME TAXES 23,301 31,591 24,440
INCOME TAXES 7,123 9,807 8,498
-------- -------- --------
NET INCOME 16,178 21,784 15,942
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses) on securities available for sale arising
during the period (net of taxes (benefit) of $170 in 1998, $237 in 1997
and ($743) in 1996) 925 522 (584)
Less: reclassification adjustment for gains included in net income (net of
taxes of $221 in 1998, $54 in 1997 and $180 in 1996) (332) (82) (269)
-------- -------- --------
Total other comprehensive income (loss) 593 440 (853)
-------- -------- --------
COMPREHENSIVE INCOME $ 16,771 $ 22,224 $ 15,089
======== ======== ========
EARNINGS PER SHARE - BASIC $ 37.41 $ 50.37 $ 36.86
======== ======== ========
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The accompanying notes are an integral part of the consolidated financial
statements.
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WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands)
Unrealized
Gain (Loss)
on Securities
Class A Class B Available Total
Common Common Common Retained For Sale, Shareholders'
Stock Stock Stock Surplus Earnings Net of Taxes Equity
----------- --------- ----------- ---------- ----------- -------------- ---------------
BALANCE, JANUARY 1, 1996 $2,774 $683 $38,066 $68,416 $229 $110,168
Net income 15,942 15,942
Cash dividend declared (6,919) (6,919)
Change in net unrealized gain (loss)
on securities available for sale,
net of taxes (853) (853)
----------- --------- ----------- ---------- ----------- -------------- ---------------
BALANCE, DECEMBER 31, 1996 2,774 683 38,066 77,439 (624) 118,338
Net income 21,784 21,784
Cash dividends declared (8,001) (8,001)
Change in net unrealized gain (loss)
on securities available for sale,
net of taxes 440 440
Purchase of minority interest in
subsidiaries (208) (208)
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BALANCE, DECEMBER 31, 1997 2,774 683 38,066 91,014 (184) 132,353
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Redesignation of common stock $3,457 (2,774) (683)
Net income 16,178 16,178
Cash dividends declared (14,705) (14,705)
Change in net unrealized gain (loss)
on securities available for sale,
net of taxes 593 593
Purchase of minority interest in
subsidiaries (26) (26)
----------- --------- ----------- ---------- ----------- -------------- ---------------
BALANCE, DECEMBER 31, 1998 $3,457 $38,066 $92,461 $409 $134,393
=========== ========= =========== ========== =========== ============== ===============
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The accompanying notes are an integral part of the consolidated financial
statements.
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WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands)
-----------
1998 1997 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,178 $ 21,784 $ 15,942
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,456 3,236 2,974
Provision for loan losses 2,563 1,623 1,505
(Benefit) provision for deferred income tax (243) 1,342 (2,185)
Net premium amortization and discount accretion of
investment securities 720 502 487
Net realized gain on sales of securities available for sale (553) (136) (449)
Write-down of carrying value of investment securities
available for sale 3,200
Net gain on sales of loans held for sale (807) (280) (151)
Proceeds from sales of loans held for sale 7,852 3,296 727
Origination of loans held for sale (16,514) (4,491) (1,043)
Provision for loss on other real estate 5,460
Loss (gain) on sales of premises and equipment 49 (8) 90
Net gain on sales of other real estate (546) (1,466) (55)
Decrease (increase) in accrued interest and other assets 696 72 (1,165)
(Decrease) increase in accrued interest and other liabilities (2,754) (561) 2,114
--------- --------- ---------
Total adjustments (2,881) 3,129 8,309
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,297 24,913 24,251
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 55,482 11,414 30,160
Proceeds from maturities 168,502 92,057 16,721
Purchases (213,613) (163,281) (72,537)
Investment securities held to maturity:
Proceeds from maturities 281,684 82,407 48,343
Purchases (253,862) (111,341) (102,353)
Purchase of minority interest in subsidiaries (26) (208)
Net (increase) decrease in loans (4,131) 20,605 (26,697)
Purchases of premises and equipment (5,774) (4,248) (4,017)
Proceeds from sales of premises and equipment 18 8 29
Proceeds from sales of other real estate 3,680 2,725 2,259
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 31,960 (69,862) (108,092)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in total deposits 11,003 45,552 69,608
(Decrease) increase in FHLB advances (1,350) 1,350
Cash dividends paid (9,731) (7,569) (6,812)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,272 36,633 64,146
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 46,529 (8,316) (19,695)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 60,334 68,650 88,345
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 106,863 $ 60,334 $ 68,650
========= ========= =========
Supplemental cash flow information:
Cash paid during the year for:
Interest on deposits and other borrowings $ 44,762 $ 42,229 $ 37,694
Income taxes 6,563 9,407 10,244
Transfers from loans to other real estate 2,427 951 2,104
-----------
The accompanying notes are an integral part of the consolidated financial
statements.
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WEST SUBURBAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
During the first quarter of 1997, West Suburban Bank (the "Bank") received
approvals from the Federal Deposit Insurance Corporation ("FDIC"), the Office of
the Illinois Commissioner of Banks and Real Estate and the Office of Thrift
Supervision to merge the four bank subsidiaries and the thrift subsidiary into
one state chartered bank under the name "West Suburban Bank." On May 17, 1997,
the subsidiaries were merged and since that date, West Suburban Bancorp, Inc.
("West Suburban") has conducted its banking activities through its single bank
subsidiary. The merger had no significant impact on the Company's financial
condition or results of operations. West Suburban together with the Bank may be
referred to as the "Company." The consolidated financial statements include the
accounts of West Suburban and the Bank. Significant intercompany accounts and
transactions have been eliminated.
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in accordance
with generally accepted accounting principles and conform to general practices
within the banking industry. A summary of accounting policies follows.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
including the allowance for loan losses, and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
INVESTMENT SECURITIES
Debt and marketable equity securities are classified into two categories, "held
to maturity" and "available for sale." Held to maturity securities include those
debt securities where the Company has both the ability and positive intent to
hold them to maturity. Securities not meeting these criteria are classified as
available for sale. Held to maturity securities are carried at amortized
historical cost while available for sale securities are carried at fair value
with net unrealized gains and losses (net of tax) reported as a separate
component of shareholders' equity. Gains or losses on disposition are based on
the net proceeds and the adjusted carrying amount of the securities sold, using
the specific identification method. Any decline in the carrying values of
investment securities which is deemed to be other than temporary is charged
against current earnings. The Company does not engage in trading activities. The
Company has not utilized futures, forwards, swaps or option contracts in order
to manage its interest rate risk or otherwise.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan losses. Interest on loans is recognized based upon the principal amount
outstanding. Accrual of interest is generally discontinued on a loan when it
becomes 90 days past due or when management believes, after considering economic
and business conditions and collection efforts, that the borrowers' financial
condition is such that collection of principal or interest is doubtful. In some
circumstances, a loan that is more than 90 days past due can remain on accrual
status if it can be established that payment will be received within another 90
days or if it is fully secured and in the process of collection. When a loan has
been placed on nonaccrual status, interest that has been earned but not
collected is charged back to the appropriate interest income account. When
payments are received on nonaccrual loans they are first applied to principal,
then to expenses incurred for collection and finally to interest income.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
losses on existing loans that may become uncollectible, based on evaluations of
the collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to pay.
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company reviews its commercial and real estate construction and
non-residential mortgage loans on a quarterly basis to determine the amount of
impairment, if any. Impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's observable market price, or the fair value of the loan's collateral, if
repayment of the loan is collateral dependent. A valuation allowance is
maintained for the amount of impairment. Generally, loans 90 or more days past
due and all loans on a nonaccrual basis are considered impaired. Interest income
on impaired loans is recognized in a manner consistent with the Company's
interest policy.
LOANS HELD FOR SALE
Loans are identified as either held for investment or held for sale upon their
origination. Loans held for sale are recorded at the lower of amortized cost or
market value, determined on an aggregate basis. Unrealized losses, if any, are
recognized on a current basis.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation, which
is generally computed on the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized on the straight-line
method over the shorter of the estimated useful lives of the improvements or the
terms of the related leases.
OTHER REAL ESTATE
Other real estate includes properties acquired in partial or total settlement of
problem loans. The properties are recorded at the lower of cost or fair value
less estimated selling costs at the date acquired. Losses arising at the time of
acquisition of such properties are charged to the allowance for loan losses. Any
subsequent decline in value is charged to current operations. The revenue
received from, and expenses incurred in maintaining, such properties are also
included in current operations. The amounts the Company could ultimately recover
from other real estate could differ materially from the amounts used in
determining the net carrying value of the assets because of future market
factors beyond the Company's control or changes in the Company's strategy for
recovering its investment. Management believes the net carrying value of other
real estate is a reasonable estimate of its fair value.
INTANGIBLES
The Company accounted for the acquisition of its former thrift subsidiary using
the purchase method of accounting. The related intangibles are being amortized
over 15 years using the straight-line method and are included in accrued
interest and other assets. Long-lived assets and certain identifiable
intangibles that are used in operations are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
might not be recoverable.
TRUST ASSETS AND FEES
Assets held in fiduciary or agency capacities are not included in the
consolidated balance sheets since such items are not assets of the Company.
Income from trust fees is recorded when received. This income does not differ
materially from trust fees computed on an accrual basis.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The Company files consolidated federal and state
income tax returns.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards ("SFAS") 128,
"Earnings per Share," in 1997, which revised the standards for computing and
presenting basic and diluted earnings per share. All prior periods have been
restated. Earnings per share is calculated on the basis of the daily weighted
average number of shares outstanding. The Company has no dilutive potential
common shares outstanding.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, interest-earning deposits in financial institutions and federal
funds sold. Generally, federal funds are sold for one day periods.
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
SFAS 125, "Accounting for the Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," as amended by SFAS 127, "Deferral of the
Effective Date of Certain Provisions of SFAS 125," was effective for the Company
beginning January 1, 1997. SFAS 125 provides new accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
"financial-components" approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. In December 1996, the Financial Accounting Standards Board
("FASB") issued SFAS 127, "Deferral of the Effective Date of Certain Provisions
of SFAS 125," which deferred the effective date of certain provisions of SFAS
125 for one year. Neither the adoption of SFAS 125 nor SFAS 127 had a material
impact on the Company's financial condition or results of operations.
In June 1997, FASB issued SFAS 130, "Reporting Comprehensive Income," which
requires businesses to disclose comprehensive income and its components in their
general-purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997, with reclassification of comparative
financial statements and is applicable to interim periods.
Additionally, in June 1997, the FASB issued SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information," which required reporting
information regarding the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance. The Company
manages its business on the basis of one reportable segment, focusing primarily
on retail and commercial banking activities.
RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial statements to
conform with the current year's presentation.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and fair value of investment securities available for sale
are as follows at December 31:
---------------------------------------------------------------------------------------------------------------------------
1998
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- -------------- -------------- ---------------
Corporate $144,301 $866 ($239) $144,928
U.S. government agencies and corporations 46,327 66 (143) 46,250
U.S. Treasury 505 4 509
States and political subdivisions 1,188 24 1,212
-------- ------ ----- --------
Total debt securities 192,321 960 (382) 192,899
Preferred Stock and other equity securities 12,626 99 12,725
-------- ------ ----- --------
Total $204,947 $1,059 ($382) $205,624
======== ====== ===== ========
---------------------------------------------------------------------------------------------------------------------------
1997
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- -------------- -------------- ---------------
Corporate $170,335 $498 ($506) $170,327
U.S. government agencies and corporations 26,550 120 (537) 26,133
U.S. Treasury 12,084 (73) 12,011
States and political subdivisions 1,178 19 1,197
--------------- -------------- -------------- ---------------
Total debt securities 210,147 637 (1,116) 209,668
Preferred Stock and other equity securities 8,745 181 (7) 8,919
--------------- -------------- -------------- ---------------
Total $218,892 $818 ($1,123) $218,587
=============== ============== ============== ===============
--------------------------------------------------------------------------------
12
--------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of investment securities held to maturity are
as follows at December 31:
---------------------------------------------------------------------------------------------------------------------------
1998
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- -------------- -------------- ---------------
U.S. government agencies and corporations $136,467 $237 ($269) $136,435
States and political subdivisions 35,212 977 (34) 36,155
--------------- -------------- -------------- ---------------
Total $171,679 $1,214 ($303) $172,590
=============== ============== ============== ===============
---------------------------------------------------------------------------------------------------------------------------
1997
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- -------------- -------------- ---------------
U.S. government agencies and corporations $162,176 $134 ($168) $162,142
States and political subdivisions 37,116 679 (32) 37,763
--------------- -------------- -------------- ---------------
Total $199,292 $813 ($200) $199,905
=============== ============== ============== ===============
The amortized cost and fair value of debt securities available for sale and held
to maturity at December 31, 1998 by contractual maturity are as follows:
---------------------------------------------------------------------------------------------------------------------------
Available for Sale Held to Maturity
---------------------------------- ----------------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
--------------- -------------- -------------- ---------------
Due in 1 year or less $70,060 $70,223 $27,172 $27,195
Due after 1 year through 5 years 121,982 122,397 108,942 109,181
Due after 5 years through 10 years 5 5 21,183 21,445
Due after 10 years 274 274 14,382 14,769
--------------- -------------- -------------- ---------------
Total $192,321 $192,899 $171,679 $172,590
=============== ============== ============== ===============
---------------------------------------------------------------------------------------------------------------------------
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Gross gains and gross (losses) of $558 and ($5), $150 and ($14), and $476 and
($27) were realized on sales in 1998, 1997 and 1996, respectively.
Investment securities with a carrying value of approximately $13,155 and $24,688
at December 31, 1998 and 1997, respectively, were pledged to secure public
deposits, fiduciary activities and for other purposes required or permitted by
law.
--------------------------------------------------------------------------------
13
--------------------------------------------------------------------------------
NOTE 3 - LOANS
Major classifications of loans were as follows at December 31:
-------------------
1998 1997
----------------- -----------------
Commercial $225,774 $233,343
Installment 16,468 21,015
Indirect auto 30,412
Real estate:
Mortgage 289,934 292,675
Home equity 111,446 127,587
Construction 69,640 72,415
Held for sale 16,514 4,491
VISA - credit card 14,210 16,235
Other 6,748 4,549
----------------- -----------------
Total 781,146 772,310
Allowance for loan losses (9,998) (9,772)
----------------- -----------------
Loans, net $771,148 $762,538
================= =================
-------------------
The Company makes commercial, personal and residential loans primarily to
customers throughout the western suburbs of Chicago. The Company's loans to the
construction and land development industries represented 8.9% and 9.4% of total
loans at December 31, 1998 and 1997, respectively. The Company's real estate
construction loans are generally made within its market area. The Company
manages this exposure by continually reviewing local market conditions and
closely monitoring collateral values.
Loans on which the accrual of interest has been discontinued or reduced amounted
to $14,979, $3,042 and $2,283 at December 31, 1998, 1997 and 1996, respectively.
If interest on those loans had been accrued, such income would have approximated
$615, $457 and $136 for 1998, 1997 and 1996, respectively.
Changes in the allowance for loan losses were as follows for the years ended
December 31:
-------------------
1998 1997 1996
----------------- ----------------- -----------------
Balance, beginning of year $9,772 $9,603 $8,900
Provision for loan losses 2,563 1,623 1,505
Loans charged-off (2,732) (1,732) (1,097)
Recoveries 395 278 295
----------------- ----------------- -----------------
Balance, end of year $9,998 $9,772 $9,603
================= ================= =================
-------------------
The Company's impaired loans consisted of commercial and non-residential
mortgage loans totaling $32,161 at December 31, 1998 and $17,156 at December 31,
1997. Of these impaired loans, $485 required a valuation allowance of $36 at
December 31, 1998 compared to impaired loans of $2,496 with valuation allowance
of $676 at December 31, 1997. The average outstanding balance of impaired loans
was approximately $35,856 and $15,718 for the years ended December 31, 1998 and
1997, respectively. The interest income recognized on impaired loans was
approximately $2,391 and $1,324 for the years ended December 31, 1998 and 1997,
respectively. The Company had no impaired real estate construction loans during
1998 or 1997.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. Servicing loans for others generally consists of
collecting mortgage payments, maintaining escrow accounts, disbursing payments
to investors and foreclosure processing. Loan servicing income is recorded on
the accrual basis and includes servicing fees from investors and certain charges
collected from borrowers. At December 31, 1998 and 1997, the Company was
servicing loans for the benefit of others with aggregate unpaid principal
balances of $116,989 and $148,386, respectively.
--------------------------------------------------------------------------------
14
--------------------------------------------------------------------------------
NOTE 4 - PREMISES AND EQUIPMENT
Major classifications of these assets are summarized as follows at December 31:
----------
1998 1997
-------- --------
Land $ 8,018 $ 5,848
Premises 27,927 26,060
Leasehold improvements 570 679
Furniture and equipment 29,420 28,625
-------- --------
65,935 61,212
Less accumulated depreciation and amortization (32,542) (30,070)
-------- --------
Total $ 33,393 $ 31,142
======== ========
----------
NOTE 5 - DEPOSITS
The major categories of deposits are summarized as follows at December 31:
------------
1998 1997
---------- ----------
Demand and other noninterest-bearing $ 112,464 $ 124,220
NOW accounts 34,712 48,915
Money market checking 99,304 283
Money market savings 501,128 465,683
Time, $100,000 and over 81,041 84,083
Time, other 327,303 421,765
---------- ----------
Total $1,155,952 $1,144,949
========== ==========
------------
Interest expense on interest-bearing deposits is summarized as follows for the
years ended December 31:
---------
1998 1997 1996
------- ------- -------
NOW accounts $ 852 $ 1,286 $ 2,836
Money market checking 1,320 11
Money market savings 14,345 13,177 12,314
Time, $100,000 and over 4,817 5,100 3,675
Time, other 20,540 24,739 18,962
------- ------- -------
Total $41,874 $44,313 $37,787
======= ======= =======
---------
NOTE 6 - INCOME TAXES
The income tax provision reflected in the Consolidated Statements of Income and
Comprehensive Income is as follows for the years ended December 31:
---------
1998 1997 1996
------- ------ -------
Current:
Federal $6,525 $7,271 $ 9,068
State 841 1,194 1,615
Deferred (243) 1,342 (2,185)
------ ------ -------
Total $7,123 $9,807 $ 8,498
====== ====== =======
---------
--------------------------------------------------------------------------------
15
--------------------------------------------------------------------------------
NOTE 6 - INCOME TAXES (CONTINUED)
A reconciliation between taxes computed at the statutory income tax rates and
the consolidated effective tax rates follows:
--------
1998 1997 1996
------ ------ ------
Statutory income tax rates 35.0% 35.0% 35.0%
(Decrease) increase in taxes resulting from:
Federal tax-exempt income (3.1) (2.8) (3.9)
State income taxes, net of federal tax benefit 2.3 3.0 3.2
Resolution of the Internal Revenue Service Examination (3.4)
Other (3.6) (0.8) 0.5
------ ------ ------
Consolidated effective tax rates 30.6% 31.0% 34.8%
====== ====== ======
--------
The temporary differences which created deferred tax assets and liabilities at
December 31 are detailed below:
--------
1998 1997
------ ------
Deferred tax assets:
Allowance for loan loss $3,467 $3,377
Deferred compensation 1,318 1,374
Unrealized loss on securities available for sale 121
------ ------
Total deferred tax assets 4,785 4,872
------ ------
Deferred tax liabilities:
Depreciation 523 707
Unrealized gain on securities available for sale 268
Other 205 230
------ ------
Total deferred tax liabilities 996 937
------ ------
Net deferred tax assets $3,789 $3,935
====== ======
--------
NOTE 7 - EMPLOYEE BENEFIT PLANS
As of December 31, 1998, the Company maintained an employee stock ownership
plan, the West Suburban Bank Employee Stock Ownership Plan (the "Plan"),
covering substantially all full-time employees who have satisfied specific age
and service requirements. The Plan is a tax-qualified stock bonus plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
The Plan is designed to provide incentives to participants by granting them an
interest in the Company's common stock in which the Plan invests. The Plan is an
individual account defined contribution plan, which means that an individual
account is established for each participant of the Plan and that the amount of
benefits payable upon retirement, termination, disability or death is based upon
service and the amount of the employer's contributions and any income, expenses,
gains or losses which may have been allocated to the participant's account.
Annual contributions were made in accordance with resolutions passed by the
board of directors of the Bank and in aggregate amounted to $1,387 in 1998,
$1,347 in 1997 and $1,221 in 1996. The Bank also maintains deferred compensation
plans in which former and current executive officers participate. The deferred
compensation expense for the years ended December 31, 1998, 1997 and 1996
amounted to $140, $204 and $406, respectively. The deferred compensation plans
are not qualified under the Code and, therefore, tax deductions are allowed only
when benefits are paid.
During 1996, the Company terminated the Aurora Federal Savings Bank, F.S.B.
Pension Plan (the "Aurora Pension Plan"). The Aurora Pension Plan was a
successor plan to the Financial Institutions Retirement Fund program (the "FIRF
Plan") which the former thrift subsidiary maintained prior to its acquisition by
the Company. As a result of the termination of the Aurora Pension Plan,
approximately $1.1 million of excess assets reverted to the Company. This amount
was recognized as income by the Company during 1996 and is reflected in other
operating income-other.
--------------------------------------------------------------------------------
16
--------------------------------------------------------------------------------
NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These financial instruments involve, to varying degrees,
elements of credit and interest rate risks in addition to the amount recognized
in the consolidated balance sheets. The contractual amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit risk in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. The Company
generally requires collateral or other security to support financial instruments
with credit risk. A summary of the contractual amount of the Company's exposure
to off-balance-sheet risk as of December 31 is as follows:
----------
1998 1997
-------- --------
Financial instruments whose contractual amounts
represent credit risks:
Commitments to extend credit $332,417 $292,527
Letters of credit 14,423 19,912
-------- --------
Total $346,840 $312,439
======== ========
----------
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other terminating clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being exercised, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies and
may include accounts receivable, inventory, property and equipment or commercial
or residential properties.
Letters of credit written are conditional commitments issued by the Company to
either extend credit to a customer or guarantee the performance of a customer to
a third party. Guarantees of performance are primarily issued to support public
and private borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan facilities
to customers. The Company holds collateral supporting those commitments for
which collateral is deemed necessary. The extent and nature of collateral held
for those commitments varies.
NOTE 9 - CONTINGENT LIABILITIES
The Company is a party to various legal actions arising from normal business
activities. Management believes that pending actions are either without merit or
that the ultimate liability, if any, resulting from them will not materially
affect the Company's consolidated financial position or results of operations.
NOTE 10 - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
Estimated fair values of financial instruments have been calculated based on
certain assumptions and selected data from within the Company's various
financial instrument classifications. For short-term maturing assets (i.e., cash
and due from banks, federal funds sold and interest-earning deposits in
financial institutions) it has been assumed that their estimated fair values
approximate their carrying values. Similarly, for loans and deposits with
variable interest rates, it has been assumed that their estimated fair values
also approximate their carrying values.
--------------------------------------------------------------------------------
17
--------------------------------------------------------------------------------
NOTE 10 - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE (CONTINUED)
The estimated fair values of the Company's financial instruments as of December
31 are set forth in the table below:
---------------------------------------
1998 1997
------------------------------------- -------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------------- --------------- --------------- -----------------
Financial assets:
Cash and cash equivalents $106,863 $106,863 $60,334 $60,334
Investment securities:
Available for sale 205,624 205,624 218,587 218,587
Held to maturity 171,679 172,590 199,292 199,905
Loans, less allowance for loan losses 771,148 792,146 762,538 772,410
----------------- --------------- --------------- -----------------
Total financial assets $1,255,314 $1,277,223 $1,240,751 $1,251,236
================= =============== =============== =================
Financial liabilities:
Deposits $1,155,952 $1,162,358 $1,144,949 $1,159,387
----------------- --------------- --------------- -----------------
Total financial liabilities $1,155,952 $1,162,358 $1,144,949 $1,159,387
================= =============== =============== =================
---------------------------------------
The fair values for investment securities were derived from quoted market values
as of the close of business on December 31, 1998 and 1997 when available, or,
when quotes were not available, the fair value was estimated based on quoted
prices of comparable securities. The fair values for loans, less allowance for
loan losses were estimated by discounting the future cash flows from loan
repayments using current interest rates for loans having comparable maturities.
The fair values for deposits were estimated using the present value discounted
cash flow method at discount rates comparable to current market rates for
similar liabilities.
Off-balance-sheet items which totaled $346,840 at December 31, 1998 and $312,439
at December 31, 1997 are primarily comprised of unfunded loan commitments which
are generally priced at market at the time of funding. There is no material
difference between the contractual amount and the estimated fair value of
off-balance-sheet items.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain directors and officers of the Company, and some of the corporations and
firms with which these individuals are associated, are customers of the Bank in
the ordinary course of business, and/or are indebted to the Bank for loans of
$60,000 or more. It is anticipated that they will continue to be customers of
and indebted to the Bank in the future. All such loans, however, were made in
the ordinary course of business, which did not involve more than the normal risk
of collectibility or present other unfavorable features, and were made on
substantially the same terms, including interest rates and collateral provided,
as those prevailing at the same time for comparable loans made by the Bank in
transactions with unaffiliated persons, although directors were regularly
allowed the lowest interest rate given to others on personal loans.
Certain officers and directors of the Company, their affiliates and companies in
which they have 10% or more beneficial ownership, were indebted to the Company
in the aggregate amount of $17,944 and $22,570 at December 31, 1998 and 1997,
respectively. During 1998, $20,294 in additions and $24,920 in reductions
occurred.
NOTE 12 - INVESTMENT IN SUBSIDIARY AND REGULATORY RESTRICTIONS
West Suburban is economically dependent on the cash dividends received from the
Bank. These dividends represent the primary cash flow used to fund dividend
payments to West Suburban's shareholders. Cash dividends received by West
Suburban amounted to $9,488, $20,747 and $8,136 for the years ended December 31,
1998, 1997 and 1996, respectively. The Company and the Bank are subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements results in the initiation
of certain mandatory and possibly additional discretionary - actions by
regulators that, if undertaken, could have direct material effect on the
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, each entity must meet
specific capital guidelines that involve quantitative measures of each entity's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices.
--------------------------------------------------------------------------------
18
--------------------------------------------------------------------------------
NOTE 12 - INVESTMENT IN SUBSIDIARY AND REGULATORY RESTRICTIONS (CONTINUED)
Capital amounts and classifications are also subject to qualitative judgements
by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital to risk-weighted assets,
and of Tier 1 capital to average assets. Management believes as of December 31,
1998, that the Company and the Bank met all capital adequacy requirements to
which they were subject.
Management's present policy is to limit the amount of dividends from the Bank
such that the Bank qualifies as a "well-capitalized" institution as defined by
the Federal Deposit Insurance Corporation Improvement Act of 1991, as amended,
thereby minimizing the amount of FDIC insurance premiums paid by the Bank and
providing capital to fund growth. As of December 31, 1998, the Bank could pay,
in the aggregate, dividends totaling $22,879 to West Suburban while remaining a
"well-capitalized" institution. The Bank could pay additional dividends without
seeking regulatory approval.
As of December 31, 1998 and 1997, the most recent notifications from the FDIC
categorized the Company and Bank as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as "well-capitalized"
West Suburban and the Bank must maintain minimum ratios for total capital to
risk weighted assets, Tier 1 capital to risk weighted assets and Tier 1 capital
to average assets as set forth in the table. There are no conditions or events
since that notification that management believes would result in a change of the
category. The capital amounts and ratios of the Company and the Bank are also
presented in the table:
--------------------------------------------------------------------------------------------------------------------------
For Capital
Adequacy To Be Well
Actual Purposes Capitalized
------------------------ --------------------- -----------------------
AS OF DECEMBER 31, 1998 Amount Ratio Amount Ratio Amount Ratio
------------- --------- ----------- -------- ------------ ---------
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. $142,703 13.5% $84,721 8.0% N/A N/A
West Suburban Bank 127,241 12.2 83,490 8.0 $104,362 10.0%
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. 132,660 12.5 43,361 4.0 N/A N/A
West Suburban Bank 117,198 11.3 41,745 4.0 62,617 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
West Suburban Bancorp, Inc. 132,660 10.4 51,275 4.0 N/A N/A
West Suburban Bank 117,198 9.2 51,179 4.0 63,973 5.0
--------------------------------------------------------------------------------------------------------------------------
For Capital
Adequacy To Be Well
Actual Purposes Capitalized
------------------------ --------------------- -----------------------
AS OF DECEMBER 31, 1997 Amount Ratio Amount Ratio Amount Ratio
------------- --------- ----------- -------- ------------ ---------
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. $140,781 13.7% $82,252 8.0% N/A N/A
West Suburban Bank 120,242 11.6 83,276 8.0 $104,095 10.0%
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. 131,009 12.7 41,126 4.0 N/A N/A
West Suburban Bank 110,470 10.6 41,638 4.0 62,457 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
West Suburban Bancorp, Inc. 131,009 10.2 51,386 4.0 N/A N/A
West Suburban Bank 110,470 8.3 53,400 4.0 66,750 5.0
In accordance with the regulations of the Board of Governors of the Federal
Reserve System, the Bank must maintain noninterest-earning cash balances with
the Federal Reserve Bank of Chicago. The average amount of these balances for
years ended December 31, 1998 and 1997 was approximately $13,287 and $10,436,
respectively.
--------------------------------------------------------------------------------
19
--------------------------------------------------------------------------------
NOTE 13 - COMMON STOCK
At the Annual Meeting of Shareholders of West Suburban held on May 13, 1998, the
shareholders approved an amendment to West Suburban's Articles of Incorporation,
the effect of which was to redesignate each share of Class A Common Stock and
each share of Class B Common Stock outstanding as Common Stock. Additionally,
the number of votes per share of Common Stock was reduced from five votes per
share to one vote per share on all matters submitted to the shareholders of West
Suburban. The amendment to West Suburban's Articles of Incorporation also
increased the number of shares of Common Stock that West Suburban is authorized
to issue from two million to fifteen million shares.
NOTE 14 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," which provides a comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities. This
standard requires all derivatives to be recorded on the balance sheet at fair
value and establishes "special accounting" for the following three different
types of ▇▇▇▇▇▇: ▇▇▇▇▇▇ of changes in the fair value of assets, liabilities, or
firm commitments (referred to as fair value ▇▇▇▇▇▇); ▇▇▇▇▇▇ of the variable cash
flows of forecasted transactions (cash flow ▇▇▇▇▇▇); and ▇▇▇▇▇▇ of foreign
currency exposures of net investment in foreign operations. SFAS 133 is
effective for years beginning after June 15, 1999. The Company has not yet
determined if the adoption of SFAS 133 will have an effect on the Company's
financial condition or results of operations.
NOTE 15 - CONDENSED FINANCIAL INFORMATION - PARENT ONLY
CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
----------
ASSETS 1998 1997
-------- --------
Cash on deposit in subsidiary $ 22,476 $ 22,618
Equity investment in subsidiary 117,607 110,286
Intangibles, net 1,324 1,527
Other assets 123 107
-------- --------
TOTAL ASSETS $141,530 $134,538
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 7,136 $ 2,162
Other liabilities 1 23
-------- --------
TOTAL LIABILITIES 7,137 2,185
Shareholders' equity 134,393 132,353
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $141,530 $134,538
======== ========
----------
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
---------
OPERATING INCOME 1998 1997 1996
------- ------- -------
Dividends from subsidiary $ 9,488 $20,747 $ 8,136
Interest income on investment securities 135
Other interest income 730 538 337
------- ------- -------
Total operating income 10,353 21,285 8,473
------- ------- -------
OPERATING EXPENSE
Amortization of intangibles 204 204 204
Other 593 481 240
------- ------- -------
Total operating expense 797 685 444
------- ------- -------
Income before income taxes 9,556 20,600 8,029
Income tax expense 107 25 41
------- ------- -------
Income before equity in undistributed net income of subsidiary 9,449 20,575 7,988
Equity in undistributed net income of subsidiary 6,729 1,209 7,954
------- ------- -------
NET INCOME $16,178 $21,784 $15,942
======= ======= =======
---------
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20
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NOTE 15 - CONDENSED FINANCIAL INFORMATION - PARENT ONLY (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
----------
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997 1996
-------- -------- --------
Net income $ 16,178 $ 21,784 $ 15,942
-------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net income of subsidiary (6,729) (1,209) (7,954)
Net premium amortization and discount accretion of
investment securities (135)
Amortization of intangibles 204 204 204
(Increase) decrease in other assets (16) (104) 6
Decrease in other liabilities (22) (20)
-------- -------- --------
Total adjustments (6,698) (1,129) (7,744)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,480 20,655 8,198
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities 45,000
Purchases (44,865)
Purchase of minority interest in subsidiaries (26) (208)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 109 (208)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (9,731) (7,569) (6,812)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (9,731) (7,569) (6,812)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH (142) 12,878 1,386
CASH AT BEGINNING OF YEAR 22,618 9,740 8,354
-------- -------- --------
CASH AT END OF YEAR $ 22,476 $ 22,618 $ 9,740
======== ======== ========
----------
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21
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SELECTED FINANCIAL DATA
(UNAUDITED)
The following table consists of financial data derived from the Consolidated
Financial Statements of the Company. This information should be read together
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's Consolidated Financial Statements included
elsewhere in this report (dollars in thousands, except per share data).
Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
SELECTED OPERATING DATA
Interest income $ 91,737 $ 95,208 $ 88,558 $ 83,428 $ 69,112
Interest expense 42,054 44,700 38,359 37,414 27,431
---------- ---------- ---------- ---------- ----------
Net interest income 49,683 50,508 50,199 46,014 41,681
Provision for loan losses 2,563 1,623 1,505 1,850 2,216
---------- ---------- ---------- ---------- ----------
Net interest income after provisions 47,120 48,885 48,694 44,164 39,465
Other operating income (1) 7,416 12,396 9,896 7,824 9,685
Other operating expense 31,235 29,690 34,150 30,192 27,173
---------- ---------- ---------- ---------- ----------
Income before income taxes 23,301 31,591 24,440 21,796 21,977
Income taxes 7,123 9,807 8,498 8,271 8,951
---------- ---------- ---------- ---------- ----------
Net income $ 16,178 $ 21,784 $ 15,942 $ 13,525 $ 13,026
========== ========== ========== ========== ==========
PER SHARE DATA
Earnings - Basic $ 37.41 $ 50.37 $ 36.86 $ 31.27 $ 30.12
Cash dividends declared 34.00 18.50 16.00 15.00 13.75
Book value 310.74 306.02 273.62 254.73 226.53
SELECTED BALANCES
Investment securities $ 377,303 $ 417,879 $ 328,769 $ 250,556 $ 226,007
Net loans 771,148 762,538 784,242 760,687 709,205
Total assets 1,308,953 1,293,691 1,235,604 1,154,349 1,041,495
Deposits 1,155,952 1,144,949 1,099,397 1,029,789 923,257
Shareholders' equity 134,393 132,353 118,338 110,168 97,971
RATIOS
Return on average total assets 1.26% 1.71% 1.38% 1.27% 1.29%
Return on average shareholders' equity 11.77 17.48 13.93 13.03 13.29
Cash dividends paid to net income 60.15 34.74 42.73 47.16 44.10
Average equity to average total assets 10.73 9.78 9.90 9.71 9.67
Net interest margin (FTE)(2) 4.03 4.13 4.50 4.43 4.21
----------
(1) Other operating income includes the following gains on sales of loans for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994
respectively: $807, $280, $151, $110 and $213. Other operating income in
1997 also includes a $2,344 settlement of a claim related to an
investment that the Company made during the late 1980's.
(2) Net interest margin is presented on a tax equivalent basis, assuming a
federal income tax rate of 35% and a state income tax rate of 7.3%.
--------------------------------------------------------------------------------
22
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DISTRIBUTION OF ASSETS AND NET INTEREST INCOME AND
AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS
(UNAUDITED)
(Dollars in thousands)
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
and the resultant costs, expressed both in dollars and rates. All average
balances are daily average balances. To the extent received, interest on
nonaccruing loans has been included in the table.
Years Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- --------------------------- -------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
ASSETS
Interest-earning deposits in
financial institutions $505 $27 5.3% $286 $12 4.2% $301 $16 5.3%
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Federal funds sold 58,181 3,062 5.3 35,879 1,978 5.5 34,719 1,840 5.3
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Investment securities:
Corporate 150,697 9,528 6.3 107,036 6,978 6.5 67,382 4,453 6.6
U.S. government agencies
and corporations (1) 184,372 12,122 6.6 204,541 14,152 6.9 123,145 8,089 6.6
U.S. Treasury 8,173 428 5.2 15,109 782 5.2 19,308 975 5.0
States and political
subdivisions (1) 37,503 2,806 7.5 40,475 3,060 7.6 39,626 3,137 7.9
Preferred stock and other
equity securities 6,890 472 6.9 10,419 562 5.4 13,632 781 5.7
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Total investment
securities (1) 387,635 25,356 6.5 377,580 25,534 6.8 263,093 17,435 6.6
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Loans:
Commercial (1)(2)(3) 288,091 26,729 9.3 302,774 28,722 9.5 298,872 28,307 9.5
Installment (3) 21,605 1,954 9.0 38,677 3,518 9.1 37,883 3,487 9.2
Indirect auto 9,113 970 10.6
Mortgage 291,101 23,051 7.9 291,578 24,021 8.2 299,492 24,812 8.3
Home equity 119,552 10,008 8.4 125,497 10,538 8.4 121,543 11,161 9.2
Visa and other 18,719 2,447 13.1 23,129 2,976 12.9 23,582 3,390 14.4
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Total loans (1) 748,181 65,159 8.7 781,655 69,775 8.9 781,372 71,157 9.1
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Total interest-earning
assets (1) 1,194,502 $93,604 7.8% 1,195,400 $97,299 8.1% 1,079,485 $90,448 8.4%
Cash and due from banks 37,555 37,991 37,349
Premises and equipment, net 32,103 30,796 29,935
Other real estate 2,686 2,525 5,208
Allowance for loan losses (9,467) (9,898) (9,432)
Accrued interest and other
assets (4) 22,605 17,406 13,907
---------- ---------- ----------
TOTAL ASSETS $1,279,984 $1,274,220 $1,156,452
========== ========== ==========
------------------------------
1) Interest income and yields are presented on a tax equivalent basis,
assuming a federal income tax rate of 35% and a state income tax rate of
7.3%.
2) Commercial includes construction and development loans.
3) In early 1998, installment loans ($20.2 million) for commercial customers
were reclassified to commercial loans. Average balances for 1997 and 1996
were not adjusted to reflect this change.
4) The average balances of nonaccrual loans are included in accrued interest
and other assets.
--------------------------------------------------------------------------------
23
--------------------------------------------------------------------------------
DISTRIBUTION OF ASSETS AND NET INTEREST INCOME AND
AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS
(UNAUDITED)
(CONTINUED)
(Dollars in thousands)
Years Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- --------------------------- -------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts $44,617 $852 1.9% $91,868 $1,286 1.4% $177,019 $2,836 1.6%
Money market checking 29,049 1,320 4.5 235 11 4.7
Money market savings 506,801 14,345 2.8 431,513 13,177 3.1 347,650 12,314 3.5
Time deposits:
Less than $100,000 360,241 20,540 5.7 421,156 24,739 5.9 334,177 18,962 5.7
$100,000 and greater 83,815 4,817 5.7 87,996 5,100 5.8 63,079 3,675 5.8
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Total interest-bearing
deposits 1,024,523 41,874 4.1 1,032,768 44,313 4.3 921,925 37,787 4.1
Federal funds purchased 2,397 133 5.5 7,710 419 5.4
Deferred compensation 2,820 180 6.4 2,545 200 7.9 1,684 79 4.7
FHLB advances 911 54 5.9 1,366 74 5.4
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
TOTAL INTEREST-
BEARING LIABILITIES 1,027,343 42,054 4.1 1,038,621 44,700 4.3 932,685 38,359 4.1
--------- ------- --------- ------ --------- --------
Demand deposits 107,984 110,248 103,448
Other liabilities 7,253 719 5,864
Shareholders' equity 137,404 124,632 114,455
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,279,984 $1,274,220 $1,156,452
========== ========== ==========
Net interest income $51,550 $52,599 $52,089
========= ========= =========
Net interest margin 4.0% 4.1% 4.5%
======= ====== ========
Net yield on interest-
earning assets 4.3% 4.4% 4.8%
======= ====== ========
------------------------------
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24
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
Company's financial condition as of December 31, 1998 and 1997 and results of
operations for the years ended December 31, 1998, 1997 and 1996. The discussion
and analysis should be read in conjunction with the financial statements, notes
and tables included elsewhere in this annual report. The financial information
provided below may be rounded to the nearest decimal in order to simplify the
presentation of management's discussion and analysis. However, the ratios and
percentages provided below are calculated (adjusted for rounding) using the
detailed financial information contained in the financial statements, notes and
tables included elsewhere in this annual report.
BALANCE SHEET ANALYSIS
TOTAL CONSOLIDATED ASSETS. Total consolidated assets of the Company increased
$15.3 million (1.2%) to $1,309.0 million at December 31, 1998 from $1,293.7
million at December 31, 1997. Increases in federal funds sold were the largest
component of the increase in total consolidated assets.
CASH AND CASH EQUIVALENTS. The Company's cash and cash equivalents increased
$46.6 million (77.1%) to $106.9 million at December 31, 1998 from $60.3 million
at December 31, 1997. Although the Company is likely to maintain higher levels
of liquidity during late 1999 and early 2000 than in the past, the increase in
cash and cash equivalents at December 31, 1998 resulted primarily from the
Company's increased holdings in federal funds sold as the Company elected to
decrease its holdings of investment securities due to the level of interest
rates.
INVESTMENT SECURITIES. Aggregate holdings in investment securities decreased
$40.6 million (9.7%) to $377.3 million at December 31, 1998 from $417.9 million
at December 31, 1997. The decrease in investment securities was primarily the
result of redemptions of securities by issuers as they have exercised their call
or redemption rights. The Company's objectives in managing the securities
portfolio are driven by the dynamics of its entire balance sheet which includes
managing the portfolio to maximize yield over an entire interest rate cycle
while providing liquidity and minimizing market risk.
LOANS. Total loans outstanding increased $8.8 million (1.1%) to $781.1 million
at December 31, 1998 from $772.3 million at December 31, 1997. During 1998, the
Company recorded approximately $30.4 million of net indirect auto loans. Home
equity loans decreased $16.1 million to $111.5 million at December 31, 1998 from
$127.6 at December 31, 1997, as more customers took advantage of the lower
mortgage rates to consolidate their debt. The Company will attempt to remain
competitive in its market by offering competitive rates and loan products while
not compromising its credit evaluation standards to attract new business.
Additionally, the Company hired a new commercial lender and continues to seek
additional commercial lenders.
ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY. The Company maintains an allowance
for loan losses to absorb possible losses in the loan portfolio. The allowance
for loan losses is established after a determination of the potential credit
risk of the loans held by the Company. Management evaluates the adequacy of the
allowance based on past loan loss experience, expected future net credit losses,
adverse situations that may affect the borrowers' ability to repay, estimated
value of any underlying collateral, and current and prospective business and
economic conditions. The allowance for loan losses increased $.2 million to
$10.0 million at December 31, 1998 from $9.8 million at December 31, 1997. The
ratio of the allowance for loan losses to total loans outstanding increased at
December 31, 1998 to 1.28% compared to 1.27% at December 31, 1997. Nonperforming
loans increased $10.7 million (136.3%) to $18.6 million at December 31, 1998
from $7.9 million at December 31, 1997. This increase was primarily due to the
credit relationship with a leasing company being categorized as nonaccrual
during the third quarter of 1998. The allowance for loan losses as of December
31, 1998 was approximately 54% and 124% of the level of nonperforming loans at
December 31, 1998 and December 31, 1997, respectively. As of December 31, 1998,
the total nonperforming loans to total loans was 2.4% compared to 1.0% at
December 31, 1997.
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25
--------------------------------------------------------------------------------
The following table is an analysis of the Company's nonperforming loans at
December 31 (dollars in thousands):
-----------------
1998 1997 Dollar Change
--------------- --------------- ------------------
Nonaccrual loans $14,979 $3,042 $11,937
Accruing loans 90 days past due 3,621 4,829 (1,208)
--------------- --------------- ------------------
Total nonperforming loans $18,600 $7,871 $10,729
=============== =============== ==================
Nonperforming loans as a percent of total loans 2.4% 1.0%
Other real estate $1,742 $2,450 ($708)
=============== =============== ==================
-----------------
As of December 31, 1998, the Company had $9.4 million in credit exposure to a
leasing company consisting of a warehouse line of credit with a principal
balance of $7.3 million and $2.1 million of leases purchased from the leasing
company on a limited recourse basis. The warehouse line of credit is secured by
leases and various other assets. The leasing company was engaged in the business
of originating and servicing small equipment leases until May 1998 when it sold
substantially all of its assets. Subsequently, various irregularities in the
leasing company's operations were discovered. In August 1998, the leasing
company made an assignment for the benefit of creditors. The Company remains a
secured creditor of the leasing company.
The Company has taken possession of certain leases and other assets that secure
the warehouse line of credit and has arranged for the continued servicing of the
leases. The Company is evaluating the continued retention or sale of these
leases as well as the purchased leases. The Company is also conducting
negotiations with the guarantors of the leasing company's obligations and
exploring other possible ways to maximize realizations.
In addition, the Company owns Class B Notes issued in connection with lease
securitizations arranged by the leasing company. During the third quarter of
1998, the Company recognized a loss of $3.2 million representing the
other-than-temporary impairment of the entire carrying value of the Class B
Notes, which were classified as available for sale investment securities. The
leases that comprise the underlying assets of the Class B Notes are serviced by
the institution that serves as the indenture trustee of the trust pursuant to
which Class B Notes were issued.
OTHER REAL ESTATE. During 1998, other real estate decreased $.7 million (28.9%)
to $1.7 million at December 31, 1998 from $2.4 million at December 31, 1997.
Sales of properties had an aggregate carrying value of $3.1 million while
additions of properties totaled $2.4 million. Management continues its efforts
to reduce its holdings in other real estate.
DEPOSITS. Total deposits increased $11.0 million (1.0%) to $1,156.0 million at
December 31, 1998 from $1,145.0 million at December 31, 1997. This increase was
primarily due to money market checking deposits. During the second quarter of
1998, the Company promoted a money market checking account as an alternative to
savings accounts or certificates of deposit. The Company has attracted $99.0
million in money market checking from new funds and run-off from existing higher
rate certificates of deposit instruments. The Company believes that, in a
declining interest rate environment, the cost of offering special rates to
attract deposits outweighs any perceived benefits.
Year-end balances in the Company's major categories of deposits for December 31
are summarized in the following table (dollars in thousands):
------------
Dollar Percent
1998 1997 Change Change
---------- ---------- -------- -------
Demand and other noninterest-bearing $ 112,464 $ 124,220 ($11,756) (9.5)%
NOW accounts 34,712 48,915 (14,203) (29.0)
Money market checking 99,304 283 99,021 N/A
Money market savings 501,128 465,683 35,445 7.6
Time, $100,000 and over 81,041 84,083 (3,042) (3.6)
Time, other 327,303 421,765 (94,462) (22.4)
---------- ---------- -------- -----
Total $1,155,952 $1,144,949 $ 11,003 1.0%
========== ========== ======== =====
------------
The Company attempts to remain well positioned in its market by offering
competitive rates on its savings and certificate of deposit products. Although
the Company promotes its deposit products when appropriate, management does not
intend to compromise its net interest margin to attract deposits.
--------------------------------------------------------------------------------
26
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CAPITAL RESOURCES
Shareholders' equity increased $2.0 million (1.5%) to $134.4 million at December
31, 1998 from $132.4 million at December 31, 1997. This increase was primarily
the result of the net retention (after the declaration of dividends) of $2.0
million of the Company's comprehensive income during 1998.
At the Annual Meeting of Shareholders of West Suburban held on May 13, 1998, the
shareholders approved an amendment to West Suburban's Articles of Incorporation
the effect of which was to redesignate each share of Class A Common Stock and
each share of Class B Common Stock outstanding as Common Stock. Additionally,
the number of votes per share of Common Stock was reduced from five votes per
share to one vote per share on all matters submitted to the shareholders of West
Suburban. The amendment to West Suburban's Articles of Incorporation also had
the effect of increasing the number of shares of Common Stock that West Suburban
is authorized to issue from two million to fifteen million shares.
Management has been advised that as of December 31, 1998 and 1997, the Bank
qualified as a "well-capitalized" institution as defined by the Federal Deposit
Insurance Corporation Improvement Act of 1991, as amended.
LIQUIDITY
Effective liquidity management ensures there is sufficient cash flow to satisfy
demand for credit, deposit withdrawals and attractive investment opportunities.
A large, stable core deposit base, and strong capital position are the solid
foundation for the Company's liquidity position. Liquidity is enhanced by an
investment portfolio structured to provide liquidity as needed.
The Company manages its liquidity position through continuous monitoring of
profitability trends, asset quality, interest sensitivity and maturity schedules
of earning assets and liabilities.
Generally, the Company uses cash and cash equivalents to meet its liquidity
needs. Additional liquidity is provided by maintaining assets which mature
within a short time-frame or which may be quickly converted to cash without
significant loss. These assets include interest-earning deposits in financial
institutions and the FHLB, federal funds sold and investment securities
available for sale. As of December 31, 1998 and 1997, liquid assets represented
23.9% and 21.6% of total assets, respectively.
During 1998, the Company's cash and cash equivalents increased $46.5 million.
Cash and cash equivalents from investing activities increased $32.0 million,
from operating activities increased $13.3 million and from financing activities
increased $1.2 million.
INCOME STATEMENT ANALYSIS - 1998 COMPARED TO 1997
GENERAL. The Company's net income of $16.2 million represented a decrease of
$5.6 million (25.7%) from 1997 net income of $21.8 million. This was primarily
due to the decrease in other operating income of $5.0 million in 1998 when
compared to the same period in 1997. Total other operating expense increased
$1.5 million during this period. Net interest income decreased $.9 million while
the provision for loan losses increased $1.0 million. These decreases to income
and increases to expense were partially offset by a decrease in income tax
expense of $2.7 million.
NET INTEREST INCOME. Net interest income is the primary source of income for the
Company. Net interest income is the difference between interest income earned on
earning assets and interest expense paid on interest-bearing liabilities. As
such, net interest income is affected by changes in the volume and yields on
earning assets and the volume and rates paid on interest-bearing liabilities.
Interest-earning assets consist of loans, deposits in financial institutions,
deposits in the FHLB, federal funds sold and investment securities.
Interest-bearing liabilities primarily consist of deposits, federal funds
purchased and FHLB advances. The net interest margin is the difference between
tax equivalent net interest income and average earning assets. Total interest
income, on a tax equivalent basis, decreased $3.7 million (3.8%) to $93.6
million for the year ended December 31, 1998 from $97.3 million for the same
period ended December 31, 1997. This decrease resulted from a decrease of $2.6
million due to declining yields and $1.1 million due to declines in average
interest-earning balances primarily associated with the loan portfolio. The
Company's average interest-earning assets declined $.9 million to $1,194.5
million at December 31, 1998 from $1,195.4 million at December 31, 1997. Yields
on total average interest-earning assets decreased primarily due to higher
average levels of investment securities (which generally have lower yields when
compared to loans). Yields on the Company's loan portfolio declined primarily
due to a higher level of refinancing with the real estate portfolio.
Additionally, interest
--------------------------------------------------------------------------------
27
--------------------------------------------------------------------------------
on the loan portfolio declined as the positive impact of indirect auto loans was
offset by declining average balances for all other major components. Interest on
the Company's securities portfolio also declined as higher average balances
outstanding were invested in lower yielding securities resulting from a
declining interest rate environment.
Total interest expense decreased $2.6 million (5.9%) to $42.1 million for the
year ended December 31, 1998 from $44.7 million for the year ended December 31,
1997. This decrease was primarily due to declines in average balances. Average
interest-bearing liabilities decreased $11.3 million (1.1%) to $1,027.3 million
for the year ended December 31, 1998 compared to $1,038.6 million for the year
ended December 31, 1997. This was primarily due to reduced holdings of
certificates of deposit.
The following table reflects the impact of changes in volume and interest rates
on interest-earning assets and interest-bearing liabilities on a tax equivalent
basis for each of the two years ended December 31, 1998 and 1997 (dollars in
thousands):
-----------------------------------
December 31, 1998 December 31, 1997
compared to 1997 compared to 1996
Change due to: Change due to:
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
INTEREST INCOME
Interest-earning deposits in
financial institutions $ 12 $ 3 $ 15 $ (1) $ (3) $ (4)
Federal funds sold 1,174 (90) 1,084 64 74 138
Investment securities 680 (858) (178) 7,690 409 8,099
Loans (2,915) (1,701) (4,616) 25 (1,407) (1,382)
------- ------- ------- ------- ------- -------
Total interest income (1,049) (2,646) (3,695) 7,778 (927) 6,851
------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Interest-bearing deposits (2,095) (344) (2,439) 6,525 1 6,526
Borrowed funds and deferred
compensation 18 (225) (207) (253) 68 (185)
------- ------- ------- ------- ------- -------
Total interest expense (2,077) (569) (2,646) 6,272 69 6,341
------- ------- ------- ------- ------- -------
Net interest income $ 1,028 $(2,077) $(1,049) $ 1,506 $ (996) $ 510
======= ======= ======= ======= ======= =======
-----------------------------------
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses increased
$1.0 million (57.9%) to $2.6 million in 1998 compared to $1.6 million in 1997.
This was primarily due to the increase in charge-offs during 1998. A more
detailed discussion concerning the allowance for loan losses is presented in the
Allowance for Loan Losses and Asset Quality section of this report.
OTHER OPERATING INCOME. During 1998, other operating income decreased $5.0
million (40.2%) to $7.4 million in 1998 compared to $12.4 million in 1997. This
decrease was primarily due to the receipt of settlement proceeds in 1997, of
$2.3 million relating to a claim arising from an investment that the Company
made during the late 1980's. During the first quarter of 1997, the Company also
sold its interest in a property held as other real estate for $1.5 million. As
the property had been written off, this amount represented a gain recognized as
other operating income. Additionally, during the third quarter of 1998, the
Company recognized a loss of $3.2 million representing the other-than-temporary
impairment of the entire carrying value of Class B Notes, which were classified
as available for sale investment securities. This loss was partially offset by
$.4 million from gains on sales of investment securities. Gains on sales of
loans originated for sale increased $.5 million for the year ended December 31,
1998 compared to the same period in 1997. The Company does not presently retain
servicing on sold loans which has resulted in decreasing servicing fees that is
recognized by increased gains on sales of loans originated for sale. Other
income increased $1.0 million primarily due to increased fees from checking and
mortgage application volume.
OTHER OPERATING EXPENSE. Total other operating expense increased $1.5 million
(5.2%) to $31.2 million in 1998 compared to $29.7 million in 1997. Occupancy
expense and furniture and equipment expense each increased $.4 million. Other
real estate expense decreased $.2 million as management reduced its holdings in
other real estate owned. Data processing expense increased $.3 million. Other
expense increased $.6 million primarily due to increased loan expense, other
losses and outside temporary services.
INCOME TAXES. Income tax expense decreased $2.7 million (27.4%) to $7.1 million
in 1998 from $9.8 million in 1997, resulting principally from lower taxable
income.
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28
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RETURN ON AVERAGE TOTAL ASSETS. Return on average total assets was 1.26% for
1998 and 1.71% for 1997. This decrease was primarily due to lower net income for
1998.
INCOME STATEMENT ANALYSIS - 1997 COMPARED TO 1996
GENERAL. The Company's 1997 net income of $21.8 million represented an increase
of $5.9 million (36.6%) from 1996 net income of $15.9 million. This was
primarily due to the decrease in other real estate expense of $4.5 million in
1997 when compared to the same period in 1996. Other operating income increased
by $2.5 million during this period and net interest income improved by $.3
million. These increases to income were partially offset by an increase in
income tax expense of $1.3 million.
NET INTEREST INCOME. Total interest income, on a tax equivalent basis, increased
$6.9 million (7.6%) to $97.3 million for the year ended December 31, 1997 from
$90.4 million for the year ended December 31, 1996. This increase resulted from
an increase of $7.8 million due to growth in average interest-earning balances,
which was partially offset by $.9 million due to declining yields. The Company's
average interest-earning assets grew $115.9 million (10.7%) to $1,195.4 million
at December 31, 1997 from $1,079.5 million at December 31, 1996. Yields on the
Company's loan portfolio declined primarily from the Company reducing its rates
on its home equity lines from prime plus one to prime. This reduction in rates
was a result of competitive conditions surrounding this product. Yields on total
interest-earning assets decreased during 1997. This decrease was offset by
improvements in the federal funds sold and investment securities portfolio.
Specifically, the Company's average federal funds rate increased to 5.5% for
1997 from 5.3% for 1996. Additionally, interest on the securities portfolio
increased primarily due to higher yields on U.S. government agencies and
corporations along with higher average outstanding balances.
Total interest expense increased $6.3 million (16.5%) to $44.7 million for the
year ended December 31, 1997 from $38.4 million for the year ended December 31,
1996. This increase was due to growth in average balances. Average
interest-bearing liabilities increased $105.9 million (11.4%) to $1,038.6
million for the year ended December 31, 1997 from $932.7 million for the year
ended December 31, 1996 primarily due to deposit promotions.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $.1 million
(7.8%) to $1.6 million in 1997 compared to $1.5 million in 1996. A more detailed
discussion concerning the allowance for loan losses is presented in the
Allowance for Loan Losses and Asset Quality section of this report.
OTHER OPERATING INCOME. During 1997, other operating income increased $2.5
million (25.3%) to $12.4 million in 1997 compared to $9.9 million in 1996. The
Company recorded $2.3 million of income related to a settlement of a claim
arising from an investment that it made during the late 1980's. During the first
quarter of 1997, the Company also sold its interest in a property held as other
real estate for $1.5 million. As the property was previously written off, this
amount is reflected as a gain on sales of other real estate. These increases to
income were partially offset by decreases in gains on sales of investment
securities available for sale of $.3 million and service fees of $.3 million.
During 1996, the Company recorded $1.1 million of income from a refund of the
over funding of its former thrift subsidiary's terminated benefits plan.
OTHER OPERATING EXPENSE. Total operating expense decreased $4.5 million (13.1%)
to $29.7 million in 1997 from $34.2 million in 1996. Salary and employee
benefits increased $.9 million due primarily to increased salaries and severance
payouts to two former executives of the Company. Occupancy and furniture and
equipment expense increased $.2 million and $.1 million, respectively. FDIC
insurance premiums declined $1.0 million during 1997. During 1996, the Company
incurred a one-time special SAIF assessment of $.8 million payable to the FDIC
which was imposed under the Deposit Insurance Funds Act of 1996 (the "DIFA").
Professional fees decreased $.2 million during this period. Other real estate
expense decreased $4.5 million during the same period. During 1996, the Company
recognized a $3.8 million write down of a property classified as other real
estate.
INCOME TAXES. Income tax expense increased $1.3 million (15.4%) to $9.8 million
in 1997 from $8.5 million in 1996. This increase was principally due to higher
taxable income and includes a reevaluation of the Company's tax position. The
primary reason for the reduction in the overall consolidated effective tax rate
was a result of the reversal of an income tax reserve established in prior
years. This reserve was no longer necessary as a result of an Internal Revenue
Service settlement in 1996.
RETURN ON AVERAGE TOTAL ASSETS. Return on average total assets was 1.71% for
1997 and 1.38% for 1996 as net income and average total assets grew.
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IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," which provides a comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities. This
standard requires all derivatives to be recorded on the balance sheet at fair
value and establishes "special accounting" for the following three different
types of ▇▇▇▇▇▇: ▇▇▇▇▇▇ of changes in the fair value of assets, liabilities, or
firm commitments (referred to as fair value ▇▇▇▇▇▇); ▇▇▇▇▇▇ of the variable cash
flows of forecasted transactions (cash flow ▇▇▇▇▇▇); and ▇▇▇▇▇▇ of foreign
currency exposures of net investment in foreign operations. SFAS 133 is
effective for years beginning after June 15, 1999. The Company has not yet
determined if the adoption of SFAS 133 will have an effect on the Company's
financial condition or results of operations.
INTEREST RATE SENSITIVITY
The Company attempts to maintain a conservative posture with regard to interest
rate risk by actively managing its asset/liability gap position and constantly
monitoring the direction and magnitude of gaps and risk. The Company attempts to
moderate the effects of changes in interest rates by adjusting its asset and
liability mix to achieve desired relationships between rate sensitive assets and
rate sensitive liabilities. Rate sensitive assets and liabilities are those
instruments that reprice within a given time period. An asset or liability
reprices when its interest rate is subject to change or upon maturity.
Movements in general market interest rates are a key element in changes in the
net interest margin. The Company's policy is to manage its balance sheet so that
fluctuations in net interest margin are minimized regardless of the level of
interest rates, although the net interest margin does vary somewhat due to
management's response to increasing competition from other financial
institutions.
Listed below are the balances in the major categories of rate sensitive assets
and liabilities that are subject to repricing as of December 31, 1998 (dollars
in thousands):
Over
Three Over One
Three Months to Year to
Months or Twelve Five Over Five
Less Months Years Years Total
-------------- ------------- ------------- ------------- ----------------
Rate sensitive assets:
Interest-bearing deposits in financial
institutions $624 $100 $724
Federal funds sold 64,590 64,590
Investment securities 28,599 47,423 $259,734 $41,547 377,303
Loans 268,943 192,958 237,482 66,784 766,167
-------------- ------------- ------------- ------------- ----------------
Total $362,756 $240,481 $497,216 $108,331 $1,208,784
============== ============= ============= ============= ================
Rate sensitive liabilities:
NOW accounts $34,712 $34,712
Money market checking 99,304 99,304
Money market savings 501,128 501,128
Time deposits:
Less than $100,000 71,058 $122,895 $111,785 $21,565 327,303
$100,000 and over 36,538 14,761 25,411 4,331 81,041
-------------- ------------- ------------- ------------- ----------------
Total $742,740 $137,656 $137,196 $25,896 $1,043,488
============== ============= ============= ============= ================
Interest sensitivity gap ($379,984) $102,825 $360,020 $82,435 $165,296
Cumulative interest sensitivity gap (379,984) (277,159) 82,861 165,296
Cumulative net interest-earning assets to
cumulative net interest-bearing
liabilities 48.8% 68.5% 108.1% 115.8%
Cumulative interest sensitivity gap to
total assets (29.0) (21.2) 6.3 12.6
The above table does not necessarily indicate the future impact of general
interest rate movements on the Company's net interest income because the
repricing of certain assets and liabilities is discretionary and is subject to
competitive and other pressures. As a result, assets and liabilities indicated
as repricing within the same period may in fact reprice
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30
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at different times and at different rate levels. Assets and liabilities are
reported in the earliest time frame in which maturity or repricing may occur.
The consolidated interest rate sensitivity position of the Company within the
one year window at December 31, 1998 reflects cumulative net interest-earning
assets compared to cumulative net interest-bearing liabilities of 68.5% and
cumulative net interest-earning assets that reprice or mature within one year
compared to similarly sensitive liabilities of negative 21.2%. The percentage
indicated for the cumulative net interest-earning assets as a percentage of
cumulative net interest-bearing liabilities is within the Company's target range
of acceptable gap values for the twelve-month time frame.
Management estimates that the Company's net interest income would change less
than $3.3 million if interest rates were to instantaneously increase or decrease
100 basis points compared to interest rates remaining stable. The Company also
estimates that a 100 basis point increase in interest rates would result in a
decrease of $19.2 million in the market value of its balance sheet assets and a
100 basis point decrease in interest rates would result in an increase of $19.0
million in the market value of such assets. These changes in market value
represent less than 1.5% of the Company's total carrying value of the total
assets as of December 31, 1998.
EFFECTS OF INFLATION
Unlike industrial companies, virtually all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than do the effect of general
levels of inflation. Interest rates do not necessarily move in the same
direction or experience the same magnitude of change as goods and services,
since such prices are affected by inflation. In the current economic
environment, liquidity and interest rate adjustments are features of the
Company's assets and liabilities which are important to the maintenance of
acceptable performance levels. The Company attempts to maintain a balance
between monetary assets and monetary liabilities, over time, to offset these
potential effects.
RECENT DEVELOPMENTS
During January 1999, the Company settled a claim relating to an investment that
it made during the late 1980's. The settlement amount of $3.6 million was
received in February 1999 and recognized as other operating income in 1999.
THE YEAR 2000
During 1996, West Suburban initiated the process of preparing its computer
systems and applications for the Year 2000. This process involved updating or
replacing certain of the Company's computer hardware components and software
applications and communicating with vendors and external service providers to
confirm that their applications are Year 2000 compliant. The Company has tested
and replaced, as necessary, its critical computer hardware components and
software applications and intends to continue its testing procedures in order to
ensure that its computer hardware components and software applications are Year
2000 compliant and that the operations of the Company will not be adversely
effected. The Company has set March 31, 1999 as its target date for completion
of its testing of all critical computer hardware components and software
applications.
The Company has received acknowledgment from its external service providers for
its critical computer hardware components and software applications that these
systems are Year 2000 compliant. Along with these acknowledgments, the Company
has utilized an external agency for an independent review of the Company's Year
2000 status.
The Company has incurred approximately $2.2 million in costs for replacing
hardware components and software applications. These costs were not directly
related to Year 2000 but were more directly related to enhancing technology and
the discontinuation of service of existing hardware components and software
applications. The Company estimates that its remaining Year 2000 costs will not
exceed $.1 million. Costs related to Year 2000 are expensed as incurred.
The Company identifies, measures, and monitors the risks involved in its banking
activities and related operations. There are many risks and uncertainties that
the Company recognizes and given the unique circumstance of the Year 2000 issue,
the Company is unable to determine the ultimate outcome. Due to the testing,
planning, communication and coordination the Company believes that these steps
will mitigate potential material disruption. While the effort is wide ranging
and intended to fully address all Year 2000 issues, nevertheless, it is
important to be prepared should something occur which destroys data bases or
systems due to Year 2000 programming errors. The Year 2000 Coordinator, working
with the Disaster Recovery Coordinator, has carefully analyzed related disaster
recovery and contingency planning requirements to ensure support exists, should
a Year 2000 problem arise.
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BOARDS OF DIRECTORS
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WEST SUBURBAN BANCORP, INC.
▇▇▇▇▇ ▇. ▇▇▇▇▇ Chairman of the Board
▇▇▇▇▇ ▇▇▇▇ Certified Public Accountant
▇▇▇▇▇ ▇. ▇▇▇▇ President, Chief Financial Officer
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Inner City Impact, Business Operations Director
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Former Banker
WEST SUBURBAN BANK
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Chairman; ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Corporation, Vice
President and Treasurer
▇▇▇▇▇ ▇. ▇▇▇▇▇ President
▇▇▇▇▇ ▇. ▇▇▇▇▇ Former Banker
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Ditch Witch of Illinois, Chief Executive Officer and
President
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇, Inc., Secretary and Treasurer
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ J&E Duff, Inc., President
▇▇▇▇ ▇. ▇▇▇▇▇▇ Macom Corporation, President
▇▇▇▇▇▇ ▇▇▇▇▇ Terrace Supply, Vice President
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Bracing Systems, Vice President
▇▇▇▇▇ ▇▇▇▇ Director Emeritus
F. ▇▇▇▇▇▇ ▇▇▇▇▇▇ Director Emeritus
▇▇▇▇▇▇ ▇▇▇▇▇▇ Director Emeritus
▇▇▇▇▇ ▇▇▇▇ Director Emeritus
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Director Emeritus
▇▇▇▇▇▇ ▇▇▇▇▇ Director Emeritus
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OFFICERS
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WEST SUBURBAN BANCORP, INC.
▇▇▇▇▇ ▇. ▇▇▇▇ President, Chief Financial Officer
▇▇▇▇▇ ▇. ▇▇▇▇▇ Chief Operations Officer
▇▇▇▇▇ ▇. ▇▇▇▇▇ Vice President
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Vice President
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Chief Compliance Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Secretary to the Board and Treasurer
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Director of Internal Audit
WEST SUBURBAN BANK
SENIOR OFFICERS
▇▇▇▇▇ ▇. ▇▇▇▇▇ President
▇▇▇▇▇ ▇. ▇▇▇▇▇ Senior Vice President, Marketing
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Senior Vice President, Loans and Community
Reinvestment Act Officer
▇▇▇▇▇ ▇. ▇▇▇▇ Senior Vice President, Comptroller
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Senior Vice President, Business Services
BUILDING MANAGEMENT
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Vice President, Building Management
BUSINESS SERVICES
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Business Services Officer
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32
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CALL CENTER/VISA
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Vice President, Call Center/Visa
COMMERCIAL LOANS
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. Vice President, Commercial Loans
▇▇▇▇▇ ▇▇▇▇▇ Vice President, Commercial Loans
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Vice President, Commercial Real Estate Loans
▇▇▇▇▇ ▇. ▇▇▇ Vice President, Commercial Loans
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Vice President, Commercial Loans
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Vice President, Commercial Loans
COMPLIANCE
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Chief Compliance Officer
COMPTROLLER'S DEPARTMENT
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President, Assistant Comptroller
CONSUMER LOANS
▇▇▇▇▇ ▇▇▇▇▇▇▇ Vice President, Consumer Lending Department Manager
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Vice President, Consumer Loans
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President, Consumer Loans
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Vice President, Consumer Loans
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Consumer Loan Officer
▇▇▇▇▇ ▇▇▇▇▇ Consumer Loan Officer
DATA PROCESSING
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President, Data Processing
ELECTRONIC SERVICES
▇▇▇▇▇ ▇▇▇▇▇▇ Assistant Vice President, Electronic Services
FINANCIAL SERVICES
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Vice President, Financial Services
HUMAN RESOURCES
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Vice President, Human Resources
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Director, Employee Relations
▇▇▇▇▇ ▇. Dunk Assistant Vice President, Personnel Director
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Director, Employee Development
INTERNAL AUDIT
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Vice President, Director of Internal Audit
INVESTMENTS
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President, Investments
LOAN OPERATIONS
▇▇▇▇▇ ▇▇▇▇▇▇ Vice President, Mortgage Servicing
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Vice President, Residential Mortgage Operations
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Vice President, Credit Analysis and Loan Review
▇▇▇▇▇ ▇▇▇▇▇▇ Assistant Vice President, Collections
▇▇▇▇▇ ▇. ▇▇▇▇▇ Assistant Vice President, Commercial Loan Operations
Manager
LOSS PREVENTION
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President, Loss Prevention Officer
MARKETING
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Director of Marketing
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OPERATIONS
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Vice President, Operations
▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Vice President, Operations
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Assistant Vice President, Operations
PURCHASING
▇▇▇▇▇ ▇▇▇▇▇▇▇ Assistant Vice President, Purchasing
RETAIL BANKING
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Vice President, Retail Banking
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ Vice President, Branch Manager - Oakbrook Terrace
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Vice President, Branch Manager - Westmore, Metra
Main
▇▇▇ ▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager -
▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager - Lake
▇▇▇▇▇▇ ▇▇▇▇ Assistant Vice President, Branch Manager - St.
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Assistant Vice President, Branch Manager -
Bolingbrook West
▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇▇ Assistant Vice President, Branch Manager -
Danada, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Assistant Vice President, Branch Manager -
Glendale Heights
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager -
▇▇▇▇▇ Stream
▇▇▇ ▇▇▇▇ Assistant Vice President, Branch Manager -
Villa Park
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Assistant Vice President, Branch Manager - Bartlett,
Fair Oaks
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager -
Warrenville
▇▇▇▇▇ ▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager - 75th,
Westmont
▇▇▇ Nuestrom Assistant Vice President, Branch Manager -
Bolingbrook East
▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager -
North Main
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager -
Stratford Square, President
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Assistant Vice President, Branch Manager - Galena
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager -
Naperville
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager - ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager -
South Main
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager - Eola
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Assistant Vice President, Branch Manager - Cass
SECRETARY TO THE BOARD
▇▇▇ ▇.▇. ▇▇▇▇▇▇▇▇▇▇▇ Assistant Comptroller/Secretary
TRUST
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President, Trust Officer
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Trust Officer
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34
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WEST SUBURBAN BANCORP, INC.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
--------------------------------------------------------------------------------
AURORA
Eola Road: ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇ - Opened
February ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ Facility: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
844-5200
Galena Facility: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
896-7000
BARTLETT
Bartlett Facility: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
830-5330
BLOOMINGDALE
Stratford Square Facility: ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
BOLINGBROOK
Bolingbrook East Facility: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ -
(▇▇▇) ▇▇▇-▇▇▇▇
Bolingbrook West Facility: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
- (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ STREAM
▇▇▇▇▇ Stream Facility: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ -
(▇▇▇) ▇▇▇-▇▇▇▇
Fair Oaks Facility: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
213-5920
President Street Facility: ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
752-1175
▇▇▇▇▇▇
▇▇▇▇ Avenue Facility: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
852-6900
▇▇▇▇ ▇▇▇▇▇▇ Facility: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
DOWNERS GROVE
Finley Road Facility: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ -
(▇▇▇) ▇▇▇-▇▇▇▇
GLENDALE HEIGHTS
Glendale Heights Facility: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇ - (▇▇▇) ▇▇▇-▇▇▇▇
LOMBARD
Westmore Facility: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
629-4200
North Main Facility: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
691-8558
Metra Main Facility: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
268-9010
South Main Street Facility: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ -
(▇▇▇) ▇▇▇-▇▇▇▇
Mr. Z's: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
MONTGOMERY
Montgomery Facility: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
844-5600
NAPERVILLE
Naperville Facility: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
416-3800
OAKBROOK TERRACE
Oakbrook Terrace Facility: ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
- (▇▇▇) ▇▇▇-▇▇▇▇
ST. ▇▇▇▇▇▇▇
St. ▇▇▇▇▇▇▇ Facility: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ -
(▇▇▇) ▇▇▇-▇▇▇▇
VILLA PARK
Villa Park Facility: ▇▇ ▇▇▇▇ ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ -
(▇▇▇) ▇▇▇-▇▇▇▇
WARRENVILLE
Warrenville Facility: ▇▇▇▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
393-6060
WESTMONT
Westmont Facility: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
963-2735
WHEATON
Danada Square Facility: ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
871-9890
Wheaton Facility: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
221-8220
WS 24 ATMs are available at all of the above banking
locations.
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
FINANCIAL CENTER, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
629-4200
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
VISA HEADQUARTERS, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - (630)
629-4200
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WHERE STRENGTH IS MATCHED BY SERVICE
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[MAP OF MARKET AREA]
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ANNUAL REPORT ON FORM 10-K
A copy of West Suburban Bancorp, Inc.'s Annual Report on Form 10-K, filed with
the Securities and Exchange Commission, is available without charge by writing:
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇, President and Chief Financial Officer
West Suburban Bancorp, Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, (▇▇▇) ▇▇▇-▇▇▇▇
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of West Suburban Bancorp, Inc. will be held
at West Suburban Bank, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ on Wednesday,
May 12, 1999 at 8:00 a.m. All shareholders are cordially invited to attend.
STOCK TRANSFER AGENT AND REGISTRAR
Inquiries regarding stock transfers, registration, lost certificates or changes
of name and address should be directed to the stock transfer agent and registrar
by writing:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Secretary to the Board and Treasurer
West Suburban Bancorp, Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, (▇▇▇) ▇▇▇-▇▇▇▇
COMMUNITY REINVESTMENT ACT
West Suburban Bancorp, Inc. adheres to a well-established policy of helping to
meet the credit needs of our local communities, consistent with safe and sound
lending practices, in accordance with the Community Reinvestment Act.
For additional information, contact:
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Senior Vice President and Community Reinvestment Act
Officer
West Suburban Bank, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, (630)
629-4200
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two Prudential Plaza
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
CORPORATE COUNSEL
Barack ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
MEMBER FDIC
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